Costly kerfuffle hits US shares and bonds

Traders are likely to second guess the next round of data released by the US Institute for Supply Management after a computer glitch painted three different pictures of economic growth.

The ISM May manufacturing index was released three times from the start of trade on Monday, the first result prompted a sharp selling of equities and a rally in bonds as a disappointing reading saw investors lose faith in the economic recovery.

The ISM blamed the mishap on a software error, which applied the wrong seasonal adjustment to the data.

“It’s pretty uncommon and it did seem to spook the markets there for a bit," said Westpac economist
Elliot Clarke
. While every effort was made to make sure the announcements were accurate and that seasonal adjustments were properly made, “it is obviously a human procedure and there is a chance for human error".

Roger Bridges
, head of fixed income at Tyndall Asset Management, said the rally in shares and bonds was ­magnified by the “thinness of liquidity in the market".

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The glitch played out from the start of trading, with the ISM’s first reading of 53.2 below the expectations of most economists, who thought it would be stronger at 55.5.

The main US benchmark, the S&P500, lost 8 points on the data, from 1924 to 1916 points.

US Treasuries also initially rose, sending yields lower as they move in opposite directions.

Economists queried the result and the institute was then quick to correct the reading to 56, a result that exceeded expectations and implied a significant pick up in manufacturing.

Wall Street rallied with the main index recovering to 1920 points.

But shortly after, the ISM issued another correction, reporting the index at 55.4 – nearly exactly in line with expectations – implying that growth remains sluggish at best.

Market confusion

The result of below, above and then relatively in-line expectations caused a kerfuffle across financial markets, before the market settled and the index rallied to a new record high of 1924.9 points. The Dow Jones Industrial Average also hit a record high 16,743 points.

The correction in equities led to a sell-off in bonds, and yields on US Treasuries posted the largest daily advance in more than six weeks, according to Bloomberg.

The yield on the benchmark 10-year Treasury bond was recently at 2.528 per cent, still within last week’s range.

The Chicago Board Options Exchange Volatility Index, which ­measures the level of fear in the S&P500 options market, spiked shortly after the initial release, before falling to a 10-year low.